Last year, the Financial Stability Oversight Council (“FSOC”) designated MetLife Inc. as a systemically important financial institution (“SIFI”). On January 13, 2015, MetLife filed a complaint against the FSOC, challenging the SIFI designation on the basis that the FSOC “made numerous critical errors that fatally undermined the reasoning in its Final Designation of MetLife.” MetLife is the first non-bank financial firm to challenge the FSOC’s designation.
A SIFI is an institution the FSOC has determined has the potential to negatively affect the country’s financial market. Designation as a SIFI subjects an institution to higher scrutiny and tighter capital, leverage, and liquidity rules. After an eighteen month long investigation, the FSOC concluded that “material financial distress at MetLife could pose a threat to U.S. financial stability.”
MetLife Inc. holds that it proved during the financial crisis that the company is set up to withstand financial turmoil. When it had to rewrite derivative contracts with Lehman Brothers Holdings Inc., which collapsed in 2008, the insurer’s cost was less than $20 million. According to MetLife’s CEO, $20 million is “one day’s profits of MetLife.” MetLife also did not take a capital injection from the Treasury in the 2008 financial crisis.
One of the reasons the FSOC gave for designating MetLife as a SIFI was that the company holds hard-to-sell assets and relies on derivatives, which increase its connections to other financial firms. MetLife’s CEO responded to this by saying that MetLife does not use derivatives to take risks, but rather to hedge risks such as fluctuating interest rates, stocks and bonds, and currencies. According to a regulatory finding, as of Sept. 30, 2014, MetLife held more than $400 billion in gross notional derivatives.
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